Miami Herald: Too much politics in regulation, utility analysts say

Oct 8, 2009

The Miami Herald published this article on October 8, 2009.


Herald/Times Tallahassee Bureau

A day after Florida Power & Light losts its bid to build a ratepayer-financed natural gas pipeline, utility analysts Wednesday said Florida has a “highly politicized atmosphere” for utility regulation and warned that if it continues, credit ratings for utility companies could drop.

“Moody’s views political intervention in the utility regulatory process as detrimental to credit quality, sometimes resulting in adverse rate case outcomes,” Moody’s Investors Service wrote in its Global Credit Research letter.

FPL is seeking a $1.3 billion increase in its customer base rates beginning next year and Progress Energy is seeking a $500 million increase. But Gov. Charlie Crist, fearing undue influence of the utility lobby on the commission and its staff, announced it was “time to clean house.” He appointed two new commissioners to the panel and asked the PSC to postpone a decision on the rate cases until his appointees take office in January.

Moody’s cited the rejected pipeline proposal, the governor’s call for a rate case delay, the fact that a sitting commissioner who was expected to vote on the rate case resigned on Monday, and the possibility that new commissioners may take a while “to get up to speed on often complicated utility rate matters.”

It concluded that if both FPL and Progress Energy Florida don’t get a rate relief “sufficient to maintain cash flow” at historic levels, the situation could “pressure the credit rating of both utilities” and add a “level of uncertainty to the rate proceedings.”

“When political intervention gets involved, it sometimes prevents enough of a rate increase to keep [the utility’s] debt service stable,” said Michael Haggerty, the Moody’s utility analyst who wrote the report.

But Haggerty also acknowledged that even if both companies face a lower credit ratings, the added cost of capital could be marginal compared to what the company would get from consumers if the PSC approves the rate increases.

For example, FPL now has an A1 credit rating while Progress Energy has a A3 rating. If FPL needed to borrow $2 billion to finance a project and the rating companies dropped its rating one notch to Baa, the added cost of the capital paid by electric customers — based on Moody’s Daily Bond Yields on Wednesday — would be $10 million a year more, Haggerty said. By contrast, if the PSC approves FPL’s rate increase, customers would see their base rate rise $1.3 billion more a year.

The Moody’s report also noted that the companies need the rate increase to offset the drop in customers. “These base rate increases were filed during a period of challenging economic conditions in the state, which has recently begun to lose population, contributing to weak sales volumes at both utilities,” the report said.

FPL released a statement, saying that, “a perception of greater regulatory risk means capital will be more expensive. On the other hand, constructive regulation will enable us to continue to provide efficient, reliable power at reasonable rates to our customers.”

The Moody’s warning is intended for investors, Haggerty told the Herald/Times. But, while analysts don’t expect either company to get 100 percent of their rate increase requests, the impact of a lesser rate increase will depend on other variables, he said. (Such as how much of a rate increase; how it is divided between residential, commercial and industrial users; and how much the company can depreciate.)


Mary Ellen Klas can be reached at